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Oct 24 (Reuters) - Independent U.S. refiner Valero Energy Corp on Thursday forecast favorable market conditions for the current quarter, underlining improved gasoline and distillate cracks, sending shares up 2.2% in morning trade.
"We expect to see continued product strength with inventories at lower levels and sour crude weakness resulting from the IMO low-sulfur fuel oil mandate, which goes into effect on January 1, 2020,” Chief Executive Joe Gorder said in a statement on Thursday.
U.S. refiners have been revamping their processing units to make them compliant with the International Maritime Organization's (IMO) regulatory standards.
The IMO, an agency of the United Nations, has mandated sulfur content in marine fuels be no more than 0.5%, down from 3.5% now.
The San Antonio, Texas-based company also reported a better-than-expected third quarter profit, benefiting from easy access to cheap light crude from the country's prolific shale oil basins.
Valero plans to run its 14 refineries at up to 95% of their combined capacity of 3.1 million barrels-per-day (bpd) in the fourth quarter, Homer Bhullar, vice president of investor relations, said on a post-earnings conference call.
In the U.S. Gulf Coast region, combined throughput at Valero's seven Gulf Coast refineries will run up to 96% of their combined capacity of 1.8 million bpd, Bhullar said.
Adjusted net income attributable to the company fell to $609 million, or $1.48 per share, in the third quarter, from $856 million, or $2.01 per share, a year earlier.
Analysts on average had expected $1.35 per share, according to IBES data from Refinitiv.
Refining margins fell 8.6% in the quarter, while total throughput volumes were down 4.5%. Gasoline markets are beginning an expected shift in preparation for the change in marine fuels mandated by the IMO, said Gary Simmons, Valero's senior vice president of supply.
"If you look today, low sulfur (vacuum gas oil) was $5 over gasoline in the Gulf, which is the point where you'll start to see people pull that out of crackers and put it into the low sulfur bunker, which should impact gasoline yield moving forward," Simmons said.
Reducing the volume of key feedstock vacuum gas oil going to gasoline-producing catalytic cracking units to cut sulfur in marine bunker fuels is expected to push up pump prices for consumers. (Reporting by Shradha Singh in Bengaluru, Additional reporting by Erwin Seba in Houston; Editing by Shinjini Ganguli and Steve Orlofsky)